MONTREAL - Recycled paper producer Cascades is making its corrugated cardboard plant in Cabano, Que., more environmentally friendly in a first step to expanding the mill's output and creating jobs.

The company (TSX:CAS) will spend $26 million — including $14.4 million from the federal and provincial governments — on a new system that will produce pulp by boiling wood chips instead of baking them with chemicals.

The process, described as the first in Canada and the second in the world, extracts hemicellulose, a natural polymer found in plant cell walls that can be converted to biofuel, ethanol and a natural sugar.

The biofuel could be used to heat the water, along with bark that is burned, reducing the plant's energy costs.

Cascades CEO Mario Plourde said the investment will eliminate the use of sodium carbonate-based chemicals trucked into the plant, which is both ecologically and economically beneficial.

"It's economical to operate this so I think it's good news for our industry overall," he said in an interview from Temiscouata-sur-le-lac, near Edmundston, N.B.

Plourde said the investment makes the plant more competitive and is a first step to boosting the plant's 700-tonne-a-day capacity by about 20 to 30 per cent in a couple of years.

"So the job creation will come afterwards," he said of the facility that employs about 140 workers.

Plourde said the environmental upgrade and future capacity expansion would not be possible without government grants.

"It would be too tough to invest that kind of money on that process, so....without the government help we would probably not launch this project."

The federal government contributed $3 million to the plant in 2011, in addition to its current $10 investment from Natural Resources Canada's Investments in Forest Industry Transformation (IFIT) program.

The new equipment is expected to be installed in the summer and to be fully operational by the first quarter of 2016. The plant is not expected to face any downtime because it has more than one pulp line.

Biofuel generated from the hemicellulose could be used to heat the water, reducing the plant's energy costs.

Plourde said Cascades could convert another facility after the new pulp system is up and running and the promised cost and environmental advantages are confirmed.

Founded in 1964, Cascades produces, converts and markets packaging and tissue products that are composed mainly of recycled fibres. Cascades employs almost 11,000 people at 90 plants in North America and Europe.

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News from © The Canadian Press, 2015